Life Insurance Policy Provisions, Options & Riders

Question 1

Activities of daily living (ADLs)

Answer 1

A person’s essential activities that include bathing dressing, eating, transferring, toileting, and continence

Question 2

Assignment

Answer 2

Transfer of rights of policy ownership

Question 3

Contingent beneficiary

Answer 3

A beneficiary who has second claim to the policy proceeds (after the primary beneficiary)

Question 4

NAIC - National Association of Insurance Commissioners

Answer 4

Formed to resolve insurance regulatory issues

Question 5

Principal amount

Answer 5

The face value of the policy; the original amount invested before the earnings

Question 6

Trust

Answer 6

An arrangement in which funds or property are held bya person or corporation for the benefits of another person (trust beneficiary)

Question 7

What constitutes an entire contract?

Answer 7

The policy and a copy of the application, along with any riders and amendments

Question 8

What is a free-look period?

Answer 8

A provision that allows the policyholder a specific number of days from receipt to look over and return the policy for a full refund if at all unsatisfied.
Free-look period starts when the policyowner receives the policy, no when it is issued

Question 9

Grace period

Answer 9

Time after the due date the policyowner has to pay the premium before the policy lapses (usually a month)

Question 10

Reinstatement

Answer 10

Allows for a lapsed policy to be reinstated (maximum of 3 years can pass). Must provide proof of insurability, as well as pay back any due premiums plus interest.

Question 11

Incontestibility clause

Answer 11

Prevents an insurer from denying a claim due to statements in the application after the policy has been in force for 2 years, even from concealment or misstatement of material fact (except misstated age can change the premium/benefit)

Question 12

When must claims be paid?

Answer 12

Immediately (within 30-60 days)

Question 13

Representation

Answer 13

Written response indicative to the best of the applicant’s knowledge

Question 14

Warranty

Answer 14

A statement that is guaranteed to be true

Question 15

Exclusions: aviation

Answer 15

Covers fare-paying passenger or a pilot, but will exclude coverage for noncommercial pilots, or require additional premium for the coverage

Question 16

Exclusions: war or military service

Answer 16

Most don’t exclude but of those who do, there are two clauses —
Status clause: excludes all causes of death while the insured is on active duty
Results clause: only excludes the death benefit if the insured is killed as a result of an act of war

Question 17

Suicide provision exclusion

Answer 17

Insurance policies usually stipulate a period of time during which the death benefit will not be paid the insured commits suicide. The insureds beneficiary will only be entitled to a refund of the premiums

Question 18

Primary benficiary

Answer 18

Has primary claim to the policy proceeds following the death of the insured

Question 19

Contingent beneficiary

Answer 19

Has secondary claim to the policy proceeds, only after the primary beneficiary has passed prior to the insured (also called tertiary)

Question 20

The Uniform Simultaneous Death Law

Answer 20

Stipulates that if the insured and the primary beneficiary died in the same accident and there is no sufficient evidence to show who died first, the policy proceeds are to be distributed as if the primary beneficiary died first

Question 21

The Common Disaster Clause

Answer 21

Stipulates that if the insured and the primary beneficiary died in the same common disaster (even if the insured dies first and it’s several days apart), the policy proceeds are to be distributed as if the primary beneficiary died first

Question 22

Spendthrift clause

Answer 22

Protects beneficiaries from the claims of their creditors by requiring that the benefits be paid in a fixed period or fixed-amount installments

Question 23

Automatic premium loan provision

Answer 23

Prevents the unintentional lapse of policy due to nonpayment of the premium. It is a loan for which the insurer will charge interest

Question 24

Riders

Answer 24

Written modifications attached to a policy that provides benefits not found in the original policy

Question 25

Waiver of premium

Answer 25

Waives the premium for the policy if the insured becomes totally disabled (Disability rider)

Question 26

Waiver of cost of insurance

Answer 26

In the event of disability in the insutrf, this rider waives the cost of the insurance and other expenses, but does not waive the cost of premiums necessary to accumulate cash values (Disability rider)

Question 27

Disability income benefit

Answer 27

In the event of disability, the insurer will waive the policy premiums and pay a monthly income to the insured, which is normally based on a percentage of the face amount of the policy (Disability rider)

Question 28

Payor benefit

Answer 28

If the payor of the policy (often different than the insured) becomes disabled or dies, the insurer will waive the premium until the minor reaches a certain age, often 21. Also called Juvenile Insurance (Disability rider)

Question 29

Other insured rider (family rider)

Answer 29

Provides coverage for one or more family members other than the insured. Usually level term attached to the base policy If it’s just the spouse, it’s called the spouse term rider

Question 30

Children’s term rider

Answer 30

Allows children of the insured (natural, adopted, and/or stepchildren). Usually expires when the child turns 18 or 21. Can typically convert to their own policy with proof of insurability

Question 31

Accidental death

Answer 31

Death must occur within 90 days of accident and is usually twice the face amouny (double indemnity), though some policies do triple indemnity

Question 32

Guaranteed insurability

Answer 32

Allows the insured to purchase additional coverage at a later date or event without proof of insurability for an additional premium

Question 33

Cost of living rider

Answer 33

Automatically increases the amount of insurance without evidence from the insured (due to inflation)

Question 34

Return of premium rider

Answer 34

Provides that at a death prior to a given age, not only is the original face amount payable, but an amount equal to all premiums previously paid is also payable to the beneficiary

Question 35

Accelerated benefit (Living Needs)

Answer 35

Allows the early payment of a portion of the death benefit for certain medical reasons Provides for the payment of part of the policy death benefit if the insured is diagnosed with a terminal illness that will result in death within two years The purpose of this rider is to provide the insured with the necessary funds to take care of necessary medical expenses

Question 36

Cash surrender value

Answer 36

The policyowner surrenders the policy for the current cash value when coverage is no longer needed or affordable. Any cash value over premiums paid is taxable. The insured is no longer covered. A surrender charge is a fee charged to the insured when a life policy or annuity is surrendered for its cash value

Question 37

Extended-term

Answer 37

Perm insurance is converted to term for the same face amount with the same nonforfeitures

Question 38

Reduced paid-up insurance

Answer 38

The insurer uses the policy cash value to puchase a completely paid-up permanent policy that has a reduced face amount from the former policy

Question 39

Dividend options

Answer 39

Cash payment, reduction of premium payments, accumulation of interest, paid-up additions, paid-up insurance, one-year term option

Question 40

Settlement options

Answer 40

Cash payment, life income (straight life), interest only, fixed-period installments, fixed-amount installments,

Question 41

Cash payment

Answer 41

Lump-sum

Question 42

Life income

Answer 42

Installment payments are guaranteed for as long as the recipient lives, irrespective of death. Amount of each payment is based on the life expectancy and amount of the principal. If the beneficiary exceeds that life expectamcy, payments may exceed the principal, though all payments are forfeit to the insurer as soon as the insured dies. With each of the guarantees, the size od the installment decreases

Question 43

Single life

Answer 43

Can provide a single beneficiary income for the rest of his or her life. Upon a death of the beneficiary, the payment stop

Question 44

Joint and survivor

Answer 44

Income for two or more recipients as long as they live, with the surviving recipient usually receiving a reduced payment after the first dies

Question 45

Life with period certain

Answer 45

Payments are guaranteed for lifetime of the recipient, but they also have a specific period that is guaranteed

Question 46

Life refund income option

Answer 46

The total annuity fund will be paid out to the annuitant or to the beneficiary. With the cash refund option, if the annuitant dies before the funds are depleted, a lump-sum settlement of the remainder will be made to the beneficiary, while umder the installment refund option, the beneficiary would receive the remaining funds in the form of continued annuity payments

Question 47

Interest only option

Answer 47

The insurance company retains the policy proceeds and pays interest on the proceeds to the recipient at regular intervals

Question 48

Fixed period installments option

Answer 48

Is specified period of years is selected and equal install are paid to the recipient. If the recipient dies before the end of that, the payments would continue to a beneficiary Also called period certain

Question 49

Fixed amount installments option

Answer 49

The recipient selects a specified fixed dollar amount to be paid until the proceeds are gone. If the beneficiary dies before the funds are exhausted, the funds go to a contingent

Question 50

Per Capita

Answer 50

By the head

Question 51

Per Stirpes

Answer 51

By the bloodline

Question 52

Dividend options

Answer 52

- Cash payment - Reduction of premium payments - Accumulation of interest - Paid-up additions (add additional single premium policies to increase the face amount) - Paid-up insurance (pay the policy up early)